Commercial Mortgage Questions (and Answers) with APEX’s Drew Culkin

If you’re a mortgage broker, a small business owner, or a commercial property investor who’s new to small-balance commercial mortgages, trying to learn about alternative financing can seem intimidating. But it doesn’t have to be.

At APEX, we’re committed to providing brokers and borrowers with the information that they need to make the best decisions for their clients or themselves.

We wanted to give you some basics, so we sat down with our Business Development Manager Drew Culkin to get answers to some common questions. Drew’s responses have been lightly edited for length and clarity.

Drew: So, as the business development manager, I oversee the sales department. I assist with broker calls and qualify deals with the account reps who report to me. I’m also constantly scouting out new forms of business through new broker contacts, referral partnerships with other lenders, accountants, insurance agents, really anyone that could qualify and send us a commercial deal.

APEX: What’s one piece of advice you’d give to small business owners or commercial property investors seeking a small-balance commercial mortgage?

Drew: If you don’t report all of your income on your tax returns, whether it’s because you run a cash business or you’re writing off a lot of your income, speak with your CPA first, and find out if they think you could get a bank loan. Then, go to your local bank, discuss your income with them, and see if you qualify before going ahead and seeking out an alternative commercial mortgage. Make sure that you’re aware of the different tiers of commercial lending. There’s bank lending. Then, there are middle-tier lenders that provide good terms, but take on more risk because they’re not qualifying a deal in the same way a bank would. Then, there are bridge loans and hard money lenders. So, make sure that you do some research and have an idea of where you’re going to be able to get financing.

APEX: What should brokers new to the small-balance commercial niche expect when they begin working with non-bankable borrowers?

Drew: They should expect that their clients will have faced some financial obstacles in the past. They need to speak with their borrowers and let them know that all of the information about their financial situation, whether it’s good or bad, is important to the deal. Because no matter what you do, most of the time that information is going to come to the surface anyway. We often come across loans where borrowers are not exactly the cleanest, per se. Maybe they’ve got past due taxes or they made some mistakes in regards to how they handled their finances. We need to know that to help them. Get that information up front, and let the lender you’re working with know about all the hair on the deal because if you don’t, it’s likely going to waste your time, the borrower’s time, and it’s actually probably going to waste your borrower’s money.

APEX: If a borrower has dealt with past credit issues, what should they send to help a lender get comfortable with their current financial situation?

Drew: The best thing to send would be a thorough credit explanation. If we see an older trend on their credit report of poor payment history, but they’ve picked it back up, clearly something happened there. Let’s say a family member got sick and you had to choose between paying their hospital bills and paying down debt, that still shows good character depending on what the situation is. Really just having your priorities in line and trying to push through the situation with as much responsibility and dignity as possible tells us a lot about a borrower. So, send a written credit explanation detailing how you fell into a little bit of a rough patch, and explain how you worked, or are working, to fix that. Let the lender know about the pride of ownership that you take in your property and that you’ve always made paying the mortgage a priority. Basically, show us that you did the best you could with what you had at that time; that counts for a lot. Make sure there are no holes in the explanation and that it correlates with what’s going on in your credit report. That can make or break a loan.

APEX: What advice would you give to a broker who’s working with a non-bankable borrower who is rate sensitive?

Drew: The best thing to do is to just be transparent with them and let them know that there are basically three tiers of lending. If they want the most favorable terms, they have to go to a bank. If they don’t qualify with a bank, the next step is to go to a middle-tier lender like APEX. The rates are higher because we don’t qualify our deals the way that banks qualify theirs. We don’t underwrite with tax returns, and we can handle tougher credit. Most banks won’t do a loan if you have scores below 620 regardless of what the borrower’s situation is. So, when a borrower falls into that tier, they’re put in a higher risk category, and lenders need to make up for the risk with higher interest rates. If a borrower’s not bankable, they’re going to have to pay a premium for it, and it’s important to set their expectations.

APEX: What are some important questions that brokers should ask their borrowers before they start trying to place a deal with a lender?

Drew: Where else have you been? Did you go to a bank? Am I the first person that you’re calling? What are you looking to achieve? What kind of terms are you expecting? What’s the minimum loan size you will accept to accomplish your goals? Have you ever filed for bankruptcy? Are there any judgments against you? Have you ever been arrested or convicted of a felony? Do you have any outstanding taxes due, whether personal or on the property? What are your long term financial goals and what are your long term goals with the real estate? Do you plan on keeping it? Are you going to sell it? Are you going to hand it down to a family member or put it into a trust? Those are the first questions that come to mind.

Drew: We’re a portfolio lender, which means that we keep our loans on the books and underwrite with the big picture in mind. The collateral, the credit, the situation of the borrower – all of that is important to us. So, that means we don’t exactly fit into a box. We are a gray area lender; we’re not black and white. If the loan makes sense or it has merit in alternative ways aside from qualifying based on income and credit, we’ll find a way to get the loan done. So, taking a thorough look at the pros versus the cons of each deal, and then breaking it down step by step, gives APEX a lot more room to assist borrowers in unique situations.

APEX: Finally, what do you want potential borrowers to know about APEX?

Drew: We are a subsidiary of a bank. We’ve been around for a long time, whereas a lot of our competitors folded during the financial crisis. We do tougher loans, but we don’t do bad loans. We qualify borrowers based on the strength of their collateral, the strength of their character and their credit history. We cut right to the common-sense approach, and we provide a long-term solution to borrowers who can’t qualify for bank loans. So, although we are not a bank, we follow a lot of the rules that a bank would. That approach is why we’ve been successful and been in business for over 25 years.